Correlation Between MicroSectors FANG and Bank of Montreal

Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and Bank of Montreal at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining MicroSectors FANG and Bank of Montreal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MicroSectors FANG Index and Bank of Montreal, you can compare the effects of market volatilities on MicroSectors FANG and Bank of Montreal and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in MicroSectors FANG with a short position of Bank of Montreal. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and Bank of Montreal.

Diversification Opportunities for MicroSectors FANG and Bank of Montreal

-0.28

Correlation Coefficient

MicroSectors FANG  Bank of Montreal

Very good diversification

The 3 months correlation between MicroSectors and Bank is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Bank of Montreal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Montreal and MicroSectors FANG is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on MicroSectors FANG Index are associated (or correlated) with Bank of Montreal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Montreal has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Bank of Montreal go up and down completely randomly.

Pair Corralation between MicroSectors FANG and Bank of Montreal

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the Bank of Montreal. But the etf apears to be less risky and, when comparing its historical volatility, MicroSectors FANG Index is 7.65 times less risky than Bank of Montreal. The etf trades about -0.09 of its potential returns per unit of risk. The Bank of Montreal is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,509  in Bank of Montreal on May 4, 2025 and sell it today you would earn a total of  892.00  from holding Bank of Montreal or generate 59.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	20.63%
Values	Daily Returns

MicroSectors FANG Index  vs.  Bank of Montreal

MicroSectors FANG Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, MicroSectors FANG is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Bank of Montreal

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Montreal are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward-looking signals, Bank of Montreal unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MicroSectors FANG and Bank of Montreal

The main advantage of trading using opposite MicroSectors FANG and Bank of Montreal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, Bank of Montreal can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Bank of Montreal will offset losses from the drop in Bank of Montreal's long position.

The idea behind MicroSectors FANG Index and Bank of Montreal pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..